KBRA Affirms Ratings for Home BancShares, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Conway, Arkansas-based Home BancShares, Inc. (NYSE: HOMB) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, Centennial Bank. The Outlook for all long-term ratings is Stable.

HOMB’s ratings continue to be supported by loss absorbing capacity levels that we believe to be among the strongest in our rated bank universe. In this regard, and consistent with essentially the entirety of the company’s contemporary operating history, HOMB continues to reflect near peer leading earnings (FY24 ROA of 1.8%), on-balance sheet reserves (4Q24 LLR of 1.9%), and robust core capital metrics (CET1 ratio of 15.1%). Such an earnings profile and balance sheet construction therefore provide significant protection to HOMB’s debt holders and uninsured depositors from what we otherwise believe to be a loan portfolio that features both a consequential amount of acquired loans and comparatively larger exposure to perceived riskier lending verticals such as C&D, large-dollar CRE, and and, to a lesser extent, syndications.

Risks associated with such a lending strategy were on display in 4Q24, when HOMB reported a rather high period NCO ratio of 1.44%, mostly related to a well communicated “clean up” of certain sizable west-Texas credits acquired in the company’s 2Q22 acquisition of Happy Bancshares, Inc. At the same time, in some respects, HOMB’s 4Q24 operating results confirmed our long-held hypothesis described above that the company’s peer-leading reserve levels and strong pre-provision earnings would provide meaningful protection against an uptick in credit losses. In this sense, we are hard pressed to find many other banks in our rated universe that could record $53 million of quarterly NCOs without needing to record a sizable provision expense, all while still generating peer leading earnings (4Q24 ROA of 1.8%). Naturally, prospective repeats of 4Q24 asset quality performance would be viewed unfavorably (a scenario we think highly unlikely), but we believe that the company’s 4Q24 results demonstrate the numerous structural protections inherent at HOMB should an economic slowdown or further credit quality normalization occur. HOMB’s ratings are also supported by a long tenured management team that has successfully executed the company’s long term growth strategy - one that has balanced organic growth with, at times, frequent M&A activity. Since 2008, HOMB has acquired and successfully integrated a total of 16 banks in Arkansas, Florida, Alabama, and Texas.

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